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Analysing the retrieved Case Laws
Scanned Judgements…!
Charge Created Over Property for Entrusted Amounts - A charge can be created over property to secure an amount entrusted to a person, whether movable or immovable. Such charges include fixed charges, floating charges, hypothecation, and equitable charges, depending on the nature of the security and the property involved. The creation of a charge signifies a legal interest or security interest over the property for the amount entrusted or owed ["21 Auto India Pvt. Ltd. VS Incred Financial Services Ltd. (Erstwhile known as Visu Leasing & Finance Private Limited) - Calcutta"] ["M. S. V. V. Thayanayagi Achi VS C. T. C. T. Chidambaram Chettiar and others - Madras"] ["Amita Sen VS M/s. Chatterjee Enterprises - Calcutta"].
Hypothecation and Charges - Hypothecation involves creating a charge on movable property without delivering possession to the creditor. It can be a floating or fixed charge, with fixed charges arising when the property is specifically hypothecated, and floating charges generally against assets held at any time during the security period. The crystallization of a floating charge into a fixed charge occurs when the property is identified or crystallized ["21 Auto India Pvt. Ltd. VS Incred Financial Services Ltd. (Erstwhile known as Visu Leasing & Finance Private Limited) - Calcutta"] ["Amita Sen VS M/s. Chatterjee Enterprises - Calcutta"] ["Indian Oil Corporation VS NEPC India Ltd. - 2006 0 Supreme(SC) 645"] ["Indian Oil Corporation VS NEPC India Ltd. - Crimes"] ["Indian Oil Corporation VS NEPC India Ltd. - Orissa"].
Entrustment and Misappropriation - For a charge to be valid under criminal law (e.g., Section 405 IPC), the person must be entrusted with property or dominion over it. The wrongful misappropriation or conversion of the entrusted property constitutes criminal breach of trust. Mere payment or deposit does not necessarily amount to entrustment unless property or dominion is transferred or entrusted in law or fact ["21 Auto India Pvt. Ltd. VS Incred Financial Services Ltd. (Erstwhile known as Visu Leasing & Finance Private Limited) - Calcutta"] ["P.Gowshika Boopathy vs State Rep by Inspector of Police - Madras"] ["Nikunj Keyal @ Nikunja Sanjay Kayal VS State of West Bengal - Calcutta"] ["Indian Oil Corporation VS NEPC India Ltd. - Orissa"] ["Velayudha Kurup Narayana Kurup VS Govinda Pillai Narayana Pillai - Kerala"].
Legal Effect of Creating a Charge - Creating a charge over property, whether by mortgage, hypothecation, or other security interests, effectively encumbers the property for the amount secured. Such charges are enforceable against third parties if created according to law, and the intention of the parties, as expressed in the documents, is crucial for determining whether a charge exists ["M. Karpagam VS Assistant Commissioner of Commercial Taxes Gandhipuram Circle Gandhipuram, Coimbatore - Madras"] ["MANISH SHRIVASTAVA ALIAS MANISH SRIVASTAVA vs THE STATE OF JHARKHAND - Jharkhand"] ["RAMESH KUMAR SUNEJA & ORS. VS Arun Chadha Liquidator of Pawan Buildwell Pvt. Ltd. (Corporate Debtor) & Ors. - National Company Law Appellate Tribunal"] ["Sabu Thomas vs N. Narayanan Namboothiri - Kerala"].
No Entrustment Without Property Transfer - Payments made as part of agreements like deposits or partial payments do not automatically constitute entrustment of property unless there is a transfer of ownership or possession that implies entrustment. Without such transfer, criminal breach of trust charges may not be applicable ["AKHORI CHANDRESWARI SAHAY ALIAS SACHIN SAHAY vs THE STATE OF JHARKHAND - Jharkhand"] ["Velayudha Kurup Narayana Kurup VS Govinda Pillai Narayana Pillai - Kerala"].
Analysis and Conclusion:Based on the cited sources, a charge can indeed be created over property for the amount entrusted to a person. Such charges include fixed charges, floating charges, hypothecation, and equitable charges, depending on the circumstances and the nature of the security agreement. The key factors are the existence of an entrustment or dominion over the property and the intention to create a security interest. Merely receiving money or partial payments without transferring ownership or establishing a security interest does not constitute entrustment or create a charge. Therefore, legally, it is possible to create a charge over property for the entrusted amount, provided the legal requirements for such security are fulfilled ["21 Auto India Pvt. Ltd. VS Incred Financial Services Ltd. (Erstwhile known as Visu Leasing & Finance Private Limited) - Calcutta"] ["M. S. V. V. Thayanayagi Achi VS C. T. C. T. Chidambaram Chettiar and others - Madras"] ["Amita Sen VS M/s. Chatterjee Enterprises - Calcutta"].
References:- ["21 Auto India Pvt. Ltd. VS Incred Financial Services Ltd. (Erstwhile known as Visu Leasing & Finance Private Limited) - Calcutta"]- ["M. S. V. V. Thayanayagi Achi VS C. T. C. T. Chidambaram Chettiar and others - Madras"]- ["Amita Sen VS M/s. Chatterjee Enterprises - Calcutta"]- ["P.Gowshika Boopathy vs State Rep by Inspector of Police - Madras"]- ["MANISH SHRIVASTAVA ALIAS MANISH SRIVASTAVA vs THE STATE OF JHARKHAND - Jharkhand"]- ["Velayudha Kurup Narayana Kurup VS Govinda Pillai Narayana Pillai - Kerala"]
In the realm of Indian criminal law, disputes often arise over whether a mere entrustment of money or property can lead to a criminal charge, such as under Sections 405 or 406 of the Indian Penal Code (IPC). A common question is: whether charge can be created over the property for the amount entrusted on him. This issue frequently surfaces in business dealings, loans, hypothecation agreements, and family transactions, where parties accuse each other of criminal breach of trust (CBT).
This blog post breaks down the legal nuances, drawing from established case law and principles. Note: This is general information based on judicial precedents and not specific legal advice. Consult a qualified lawyer for your situation.
Entrustment is the cornerstone of criminal breach of trust under Section 405 IPC. It requires more than just receiving money or property—there must be a deliberate transfer or handing over by the owner or entitled person to the accused, creating a fiduciary obligation to account for it. Without this, no criminal charge can stick.
As clarified in key rulings, entrusted with property involves a conscious delivery where the accused gains dominion over the property in trust for another. Mere receipt, collection, or responsibility does not suffice. For instance, the owner or person entitled to the property must have made it over or transferred it to the accusedIndian Oil Corporation VS NEPC India Ltd. - 2006 0 Supreme(SC) 645Soumajit Bag VS State of West Bengal - 2023 0 Supreme(Cal) 1122.
A frequent scenario involves hypothecation, where a borrower creates a charge on movable property (present or future) as security without delivering possession. Hypothecation means a charge... without delivery of possession of the movable property to such creditorSujit Barman Roy VS State of West Bengal - 2023 Supreme(Cal) 991. Here, ownership and possession stay with the owner—no transfer occurs, hence no entrustment.
Courts have consistently held that in hypothecation or pledge, the creditor merely has a charge or right to enforce security in default, but this doesn't amount to entrustment by the owner Indian Oil Corporation VS NEPC India LTD. - 2006 6 Supreme 66Dinesh Jain @ Dinesh Kasturchand Jain VS State of West Bengal - 2023 0 Supreme(Cal) 1110. The Supreme Court in Central Bureau of Investigation v. Duncans Agro Industries Ltd. emphasized: for criminal breach of trust, the ownership or beneficial interest must be in some person other than the accused, and the accused must hold it in trustIndian Oil Corporation VS NEPC India LTD. - 2006 6 Supreme 66Dinesh Jain @ Dinesh Kasturchand Jain VS State of West Bengal - 2023 0 Supreme(Cal) 1110.
Thus, a charge cannot be created over property solely on the basis of the amount entrusted unless there is evidence of entrustment, dishonest misappropriation, or conversion.
Judicial precedents reinforce that baseless CBT charges often mask civil disputes. In one case involving a property development agreement, petitioners faced Sections 420/406/34 IPC allegations for alleged cheating and non-payment. The court quashed proceedings, noting the essential ingredients of the offences alleged against the petitioners are not present... the dispute... is essentially civil in natureSujit Barman Roy VS State of West Bengal - 2023 Supreme(Cal) 991. No entrustment was established despite claims of forcible possession.
Similarly, in a family dispute over Rs. 2.20 lakh for business, the High Court quashed the charge-sheet under Section 406 IPC: allegations of non-return of money were found to be a civil dispute rather than a criminal oneSanjeev Chaddha VS State Of Uttar Pradesh - 2024 Supreme(All) 1613. The court required proof of (a) the accused was entrusted with property... (b) the accused had dishonestly misappropriatedSanjeev Chaddha VS State Of Uttar Pradesh - 2024 Supreme(All) 1613.
In hypothecation-specific contexts, courts clarify no entrustment occurs because the owner retains ownership and possessionIndian Oil Corporation VS NEPC India LTD. - 2006 6 Supreme 66Dinesh Jain @ Dinesh Kasturchand Jain VS State of West Bengal - 2023 0 Supreme(Cal) 1110. Another ruling on pledged property states pledge is a security interest, not a transfer of ownershipSatishchandra Ratanlal Shah VS State of Gujarat - 2019 3 Supreme 204.
Many cases blur civil recovery (e.g., specific performance, maintenance) with criminal charges. For instance, in suits seeking charges over property for advances or maintenance, courts demand readiness and willingness but rarely impose criminal liability without entrustment. One appellate decision questioned whether the plaintiff is entitled to charge over the suit property but denied it due to lack of proof, opting for refund with interest instead Vijay Prabhu VS S. T. Lajapathie - 2025 1 Supreme 514Vijay Prabu VS S. T. Lajapathie - 2023 Supreme(Mad) 639.
In endowment properties, a property dedicated for charitable activities cannot be alienated, and an encumbrance requires permission under Section 34Kimji Patel VS Idol of Sri. Samayapuram Mariamman S. Kannanoor Mannachanallur Taluk, Represented by its Executive Officer, Trichy - 2021 Supreme(Mad) 589, but this pertains to civil validity, not criminal entrustment.
For maintenance rights, courts can create a charge on a suitable portion if imperiled, but transferees take subject to it only if fraudulent Kubja Devi VS Chhape Ram. However, no charge as yet has not been created over suit land towards maintenance without due process Kubja Devi VS Chhape Ram.
Family court decrees recognizing pre-existing rights (e.g., via marriage) may admit documents for recovery but don't create new charges without compliance Nawab Mir Barkat Ali Khan Waleshan Bahadur VS Princess Manolya Jah - 2018 Supreme(AP) 137.
Applying this to the core question: In hypothecation or simple entrustment of amounts without property transfer, no valid criminal charge (CBT) can be framed solely on the amount involved. Proof of actual transfer by the owner with obligation to account, followed by dishonest acts, is mandatory. Disputes over non-payment or security defaults are typically civil, quashable if criminally pursued mala fide Sanjeev Chaddha VS State Of Uttar Pradesh - 2024 Supreme(All) 1613.
Key Test for Section 405/406 IPC:- Was property/dominion transferred to accused? Dinesh Jain @ Dinesh Kasturchand Jain VS State of West Bengal - 2023 0 Supreme(Cal) 1110- Did accused dishonestly misappropriate? Indian Oil Corporation VS NEPC India LTD. - 2006 6 Supreme 66- Is it a fiduciary/trust relationship? Indian Oil Corporation VS NEPC India Ltd. - 2006 0 Supreme(SC) 645
Charges may arise if:- Actual Handover: Owner delivers property intending trust/fiduciary duty.- Conversion Proven: Beyond security, accused diverts for personal use.- Crystallization: Floating charge becomes fixed upon default, but still requires entrustment for criminality Sujit Barman Roy VS State of West Bengal - 2023 Supreme(Cal) 991.
However, mere existence of a security interest does not automatically amount to entrustment.
Understanding these principles protects against unwarranted litigation. For tailored guidance, reach out to a legal expert.
References (select excerpts):1. Indian Oil Corporation VS NEPC India LTD. - 2006 6 Supreme 66 - Hypothecation without entrustment.2. Dinesh Jain @ Dinesh Kasturchand Jain VS State of West Bengal - 2023 0 Supreme(Cal) 1110 - Transfer essential for CBT.3. Satishchandra Ratanlal Shah VS State of Gujarat - 2019 3 Supreme 204 - Pledge not entrustment.
#CriminalBreachOfTrust, #IPC405, #EntrustmentLaw
and crystallization of such charge into fixed charge on movable property. ... 'Hypothecation' means a charge in or upon any movable property, existing in future, created by a borrower in favour of a secured creditor, without delivery of possession of the movable property to such creditor, as a security for financial assistance and includes floating charge ... (3) The accused was entrusted with the property or dom....
either to take the property, or to have a charge on the property for the amount of the trust money. ... He is, however, still entitled to a charge on the property purchased, for the amount of the trust money laid out in the purchase; and that charge is quite independent of the fact of the amount laid out by the trustee." ... It is stated that moneys entrusted came to Rs.16,575-0-3 on 13th April, 1940 and that the #....
floating charge and crystallization of such charge into fixed charge on movable property. ... 'Hypothecation' means a charge in or upon any movable property, existing in future, created by a borrower in favour of a secured creditor, without delivery of possession of the movable property to such creditor, as a security for financial assistance and includes ... In our view, the expression 'entrusted with prope....
and crystallization of such charge into fixed charge on movable property. ... 'Hypothecation' means a charge in or upon any movable property, existing in future, created by a borrower in favour of a secured creditor, without delivery of possession of the movable property to such creditor, as a security for financial assistance and includes floating charge ... In our view, the expression 'entrusted with property' o....
The dishonest intention in the matter of misappropriation or conversion of the property, entrusted being the gist of offence of criminal breach of trust, a bonafide claim of right of the petitioner/A1 to the property entrusted, prima facie under Section 406 IPC cannot be ... —Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly....
The amount paid towards consideration cannot be said to have been entrusted with the appellants by respondent no. 2. Additionally, merely because the appellants are refusing to register the sale, it does not amount to misappropriation of the advance payment. ... In the present case, the appellants were not entrusted with any property by respondent no. 2 - complainant. The only delivery made was of part payment towards an Agreement to Sell between the parties. ... Since there was no entrustment of #HL_ST....
(3) The accused was entrusted with the property or domain over it. ... Whether or not any loan amount is outstanding is a matter for the Civil Court to decide. 25. As such the present criminal proceeding against the petitioner is nothing but an abuse of the process of law. ... It is sufficient if he intends to cause, or knows that he is likely to cause, wrongful loss or damage to any person by injuring any property, whether it belongs to that person or not. ... Thus, cri....
Consequently, the Municipal Corporation created a charge over the property of the defaulter. However, the property was sold in execution of a mortgage decree. ... Therefore, from the counter-affidavit, it appears that a statutory charge was created over the property on or about June 30, 1996. ... When the subject property, which has not been mortgaged or charge has been created in consonance with the provisions of ....
For Section 405IPC to be attracted, the following have to be established:(a) the accused was entrusted with property, or entrusted with dominion over property; (b) the accused had dishonestly misappropriated or converted to their own use that property, or dishonestly ... Thus, criminal breach of trust would, inter alia, mean using or disposing of the property by a person who is entrusted with or otherwise has dominion. ... The only allegation which was found sufficien....
This charge has been created for the loan of amount 3,46,62,656/- . ... We first examine the issue whether the creation of the security interest by way of mortgage of the “Mortgaged Property” located at Noida (being Property No. ... We also note that in clause 14 of Form CHG – 1 it is very clearly stated that the property regarding which charge is created is ‘immovable property’ situated at Plot No. K – 3, Commer....
6. The High Court while deciding the appeals framed the following points for its determination: 6. To what other reliefs the plaintiff is entitled?” 5. The Trial Court recorded a finding that the plaintiff was not ready and willing to perform his part of the contract. Besides, the plaintiff had failed to plead and prove that he has suffered damages. 4. Whether the plaintiff is entitled to claim interest at the rate of 12% p.a. on the above amounts? (end of the 6th page in original) 5. Whether the plaintiff is entitled to charge over the suit property for the above amounts as clai....
Whether the plaintiff is entitled to charge over the suit property for the above amounts as claimed by him?
2. Whether a charge alone is created over the property? 3. Whether the permission under Section 34 of the Tamil Nadu Hindu Religious and Charitable Endowments Act is necessary?”
If the right of maintenance is imperiled or jeopardised by the conduct and dealings of the husband or father with reference to his properties, the Court can create a charge on a suitable portion thereof, securing the payment of maintenance to the wife or children. A transferee (in this case, the mother) who joins in a fraudulent and clandestine arrangement for defeating the right of maintenance binding on the conscience of the transferor and who pays no consideration for the transfer by her son in her favour, takes the properties subject to that right. The property in her hands is legally ch....
(v) Whether a charge can be created over the suit schedule properties ? (iv) Whether the second plaintiff is entitled to the Chiran Palace and Cedar Palace properties ? Whether the plaintiffs are entitled to permanent injunction as prayed for ?
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